The level of research productivity in drug discovery is going down and R&D expenditure is going up, while yielding fewer applications
and approvals. In general, CEOs realize they have to acquire the portfolio to achieve speed to market.
This need, in combination with greater access to capital, means mergers and acquisitions in the pharmaceutical industry will
increase dramatically over the next few years. Acquisitions already under way include Pfizer and King Pharmaceuticals, Bristol-Myers
Squibb and Zymogenetics, and possibly Sanofi-Aventis and Genzyme, as well as others that are starting the courting process.
The best acquisitions occur when the acquiring company has particular expertise that matches the market experience in the
pipeline they are acquiring—but they still need to get the integration right.
The challenge for CEOs involved in M&As will be how well their companies integrate R&D across the merging entities so they
are not just achieving cost synergies by closing research labs or efficiency of scale, but instead actually bringing drugs
to market that meet the evolving needs of patients. To be successful they need to embrace a multidisciplinary integration
approach of scientists and business people. This requires an increased flow of information between the two merging companies
across scientific disciplines, therapeutic classes, and the commercial organization. The integration has to drive this, but
in a simplified way.
For the next wave of mergers, CEOs should insist that their organizations focus on the aspects of integration that drive value.
Too many companies use a highly mechanical approach based on their past deals. CEOs today should simplify the integration
process so it focuses on real value creation. Start by setting the merger intent, demonstrate results through 100-day projects,
and declare success only when the value has been created.
Set a Merger Intent that Captures Value
An often overlooked step pre-close is to set the merger intent. Sure, companies have synergy targets that their business development
people create from due diligence. But the CEO should be able to communicate the vision of the deal on one piece of paper by
describing what the newly integrated organization will look like strategically, financially, operationally, and organizationally.
How Many 100-Day Periods Does Your Post -Merger Require?
This "merger intent" is the vision for the company at some point in the near future—ideally one year post-close—in order to
satisfy key constituents, employees, customers, investors, and analysts who are desperate for confirmation that the deal is
successful sooner rather than later.
Created in joint executive-team sessions or coalesced through one-on-one dialogue with executives, the merger intent should
answer questions about anticipated changes, projected growth and profits, organization size and structure, quality requirements,
competitive strategies, product development, customer service platforms, and much more. This may seem so obvious, but most
CEOs do not do this in a way that clarifies the path for return on investment.
The CEO must be the champion, the point person, and the driving force in the effort to persuade employees to dedicate themselves
to helping achieve the merger's goals. Generating broad enthusiasm and active support is essential for overcoming the many
obstacles that work against M&A success and which derail so many mergers. The CEO must win everyone's hearts and minds to
make integration of the merger successful. This is done by providing clear direction at all points during the pre-merger and